Pensions summary (TPS, England and Wales) This document provides a round up of where we are on pensions, so that the many people who worked hard on the campaign can get a sense of what was achieved and all members can understand the changes. Please note, none of this should be considered as individual financial advice and all figures are illustrative! Individual circumstances vary enormously. At the end, we also go on to discuss some broader issues on pay and conditions that are on the agenda at the moment. This summary refers mainly to the Teachers Pension Scheme in England and Wales. Negotiations in Northern Ireland and Scotland are ongoing. The Local Government Pension Scheme have also reached a draft agreement that is fairly similar to that for the Teachers Pension Scheme. 1 Firstly, what have we achieved? At a rough calculation, we believe our campaign and action have saved the average member 40,000 on their pension. This is the difference between the government s starting offer and final offer. It is still indisputably worse than the previous arrangements, but the action was certainly worthwhile. The main positive changes (from the campaign): a better accrual rate; full protection for anyone within ten years of retirement, and tapered protection for a further three and a half years; a smaller loss upon early retirement for younger members facing the most extended retirement age; agreement to review contribution rates in the light of opt outs. The main negative changes (remaining from the original proposals): a switch from final salary to career average for future pensions calculations (except for those who have full protection); an increase in contribution rates; an increase in retirement age over the next few decades. 1 Our understanding is that they have arrived at a slightly different balance between accrual rate and revaluation rate, which delivers similar value (but may suit people with a shorter career length more). They appear to have a better employee contribution rate, but the local government scheme is a funded scheme, rather than unfunded likes the teachers, so there is money in the pot". 1
Where does the campaign stand? We have achieved all we can from negotiation on the scheme design; this is a final offer. We have no plans to endorse it but, equally, there is no appetite from members from further industrial action. So this is where it stands and the government confirmed its intention to proceed in the Queen s speech. There is one major area remaining open. This is the issue of contribution rates. The government plans to impose three increases in employee contributions. The first increase has already taken place and there will be two further increases over the next two years. The proposal is for tiered contributions the more you earn the higher a percentage of your income you will pay. Thus, the final rate will vary, but for many members the total employee contribution at the end will be around 9-10% (up from 6.4% now). The next two contribution increases and the tiering of the rates are still up for negotiation. The government wants to take a view of opt outs. We face a dilemma here: our first instinct is to oppose a tiered contribution rate and go for a flat rate for all people (under a career average everyone gets the same value from their pension) with perhaps a lower introductory rate to tempt people in (the TPS is still better than many private pension arrangements). However, this will have the effect of increasing contributions for lower earners while lowering them for high earners i.e. helping head teachers at the expense of deputies and assistant heads. It is deputies and assistants who are hurt worse by the other reforms. Feedback from members on this would be helpful. What do I actually get? This is complicated. We shall try to explain it neutral terms below for clarity, but please don t mistake that as endorsement of the proposals. Firstly, if you are within ten years of your current normal pension age, ignore the discussion below you will get what you were originally expecting (you will have to pay higher contributions for the remainder of your working life though). The easiest way to envisage the new arrangements is to see it as two pension schemes. If you left teaching to get another job, your teacher pension would be frozen, until you retired, at which point you would start receiving income from it as normal, based on your accrued service as a teacher. This is essentially what will happen with the pensions reforms. Your current pension scheme will be frozen in 2015 and a new pension scheme will begin. You will get all your accrued rights and the income you were expecting from the old pension scheme (which will remain a final salary scheme with a lump sum). You will, of course, have worked fewer years under it than you originally planned. Your new pension scheme will begin in 2015 and will be less favourable in a number of ways, chiefly the career average calculation, lack of automatic retirement lump sum (as in the current pre-2007 scheme) and the normal pension age. Ancillary benefits such as death in service remain the same. 2
The impact of these changes will depend heavily on the proportion of your final pension that comes from the old scheme versus the new. But the following two points are critical: Your final salary on the old scheme will be calculated as your salary when you retire, not your salary in 2015. Your career average on the new scheme will be calculated starting from your salary in 2015 until your retire, not your salary when you started teaching. Both these arrangements make a big difference to the amount of pension you will get. When can I retire? One important point: the way things are designed, there is no financial gain from retiring earlier than you had planned you can t get more if you go before a certain cut off date. The old schemes and the new scheme have different normal pension ages. The old schemes have an unchanged pension age. That is, if you were due to retire at 60, you can still retire at 60 and take your full benefits. People who joined after 2007 will already have a pension age of 65. The new scheme begins with a normal pension age of 65. You may thus have two normal pension ages. If you retire at 60, you will take an actuarial reduction on the proportion of your pension that comes from the new scheme. This would be a cut of a little over a fifth if you retired five years early. Again, the impact of this will depend greatly on how much of your total pension comes from the new scheme. Thus, if most of your pension came from the old scheme, for example, you would only experience a small drop for each year you retired before 65. After this, the plans are that the normal pension age will increase by one year per decade until it reaches 68. People in their mid-thirties and under will be affected by the full extent of this. However, for the years between 65 and 68 we have obtained a better actuarial reduction of 3% per year. Not a lot, but it helps. If such a person chose to retire at 65 they would experience a 9% reduction in annual pension rather than 12%. There is a great deal of discomfort about the retirement age proposals, which is not just limited to the teaching profession. The impact on teachers with physically demanding responsibilities, such as those who care for physically disabled children for example, will be considerable; and all teaching roles are demanding of stamina and energy. The net impact is that early retirement, and lower pensions, are likely to become the norm. And we have no real guarantee that the government will stop at 68. 3
What about inflation? The value of your pension will increase at the rate of CPI + 1.6% per year while you are in service; deferred benefits (after you leave service but before you retire) will increase at CPI + 0%. The CPI is the consumer price index. CPI + 1.6% is fairly close to RPI, the retail price index. We had a choice to make about trade-offs between the revaluation rate and the accrual rate. In the end, we chose a higher accrual rate, as this seems to fit the patterns of working of more members (it helps for those who take career breaks for example). As a result of this, the accrual rate on the new scheme of 1/57 th is better than the accrual rates on the old schemes (1/80 th for pre-2007 and 1/60 th for post-2007). The accrual rate is the proportion of your salary (final or average) that goes into the pension pot. This is then multiplied by the number of years worked to get your annual pension payment. On a salary of, say, 50,000, this increase is worth about 10,000. Of course, it is calculated on your career average rather than final salary, so what you gain on one hand, you lose on the other. People whose career average is close to their final salary (mainscale teachers, for example) may get a slightly higher annual pension than before. Did the government honour their commitments? We do not believe these changes protect the status of teaching as a highly regarded and valued profession. We do not believe they take account of the unique challenges of working in schools and we have not received better (or worse) treatment than other parts of the public sector. There is no real evidence of our corner being fought, although we clearly do not see what happens inside government. There is a sense that much of this was driven by the Treasury rather than the Department for Education. To be fair, the Minister for Schools played a welcome and important role in keeping the negotiations going at a point when they nearly ran aground before Christmas, and Departmental officials were never less than professional. What are the other unions doing? ASCL, ATL and Voice appear to have accepted the offer on the table. We are unclear on the status of UCU (FE) and UCAC (Wales). NUT and NASUWT have rejected the offer and plan further industrial action. NUT and NASUWT recently signed a joint agreement which makes it likely that the work to rule will extend to NUT members as well. Their dispute goes beyond pensions to include pay and performance management. At least one of the unions needed to accept the final offer or we would have gone back to the starting offer, which as we noted at the start was considerably worse. None of our members would have thanked us for maintaining the purity of our opposition at the cost of their livelihood. For this reason, those unions who have accepted the offer are to be respected for their difficult choice. NAHT occupies a slightly more ambiguous middle ground, but we would struggle to put our signature to the deal offered as we don t want to imply that we endorse or accept what has happened. It needs to be implemented over our protests. 4
What next? We continue to negotiate on contribution rates and will keep you posted; this is likely to be a slow process and it is in our interest to take some time, as the evidence on opt outs may strengthen our cause. Our advice line can continue to provide you with more individual advice on your pension and there is a pensions calculator on the web site. On the wider pay and conditions front, attention now turns to the new STRB remit, where the government is debating the merits of deregulation of teachers pay and regionalisation of pay (two slightly incompatible aims). We firmly oppose regionalisation of pay, and are mainly of the view that total deregulation is unhelpful. The issue of performance related pay is also live. The NAHT view is that there does need to be tighter connection between performance and career progression (and that Threshold is not helping) but that we don t want to get into crude bonuses in education. All members should have received a model performance management policy that has the considerable merits of being stronger, complying with the new regulations and being agreed with ATL and NUT. We agreed to disagree on the topic of lesson observation however. NAHT has its own model policy on observations, which we recommend you start from. We also remain hopeful that (and continue to press for) a future remit of the STRB will take on the vexed issue of executive headship pay and conditions, to create some clarity for them and their leadership teams. This may happen in the autumn or spring. 5